Question 1

A decrease in the price level is called

Accepted Answer

A)  reversing course. 
B)  Volcker's regret. 
C)  disinflation. 
D)  deflation. 
A)  reversing course. 
B)  Volcker's regret. 
C)  disinflation. 
D)  deflation.

Question 2

The Fed could have popped the bubble of the housing boom in the 2000s by

Accepted Answer

A)  lending directly to homeowners. 
B)  regulating the stock markets more. 
C)  reducing the growth rate of the money supply. 
D)  doing nothing. 
A)  lending directly to homeowners. 
B)  regulating the stock markets more. 
C)  reducing the growth rate of the money supply. 
D)  doing nothing.

Question 3

Disinflation is engineered through monetary expansions.

Accepted Answer

A) True 
 B)False

Question 4

Monetary policy can be difficult for the Fed to design because of I. the political pressure from Congress. II. changing market expectations and confidence. III. imprecise data about the sizes of shocks and policy responses.

Accepted Answer

A)  I and II only 
B)  II and III only 
C)  I and III only 
D)  I, II, and III 
A)  I and II only 
B)  II and III only 
C)  I and III only 
D)  I, II, and III

Question 5

Disinflation occurs when the Fed

Accepted Answer

A)  raises the growth rate of the money supply. 
B)  reduces the growth rate of the money supply. 
C)  sets the money supply growth rate above the inflation rate. 
D)  does nothing when a shock occurs. 
A)  raises the growth rate of the money supply. 
B)  reduces the growth rate of the money supply. 
C)  sets the money supply growth rate above the inflation rate. 
D)  does nothing when a shock occurs.

Question 6

What is the difference between disinflation and deflation?

Accepted Answer

A)  Disinflation is a smaller increase in prices, whereas deflation is a decrease in prices. 
B)  Deflation is a smaller increase in prices, whereas disinflation is a decrease in prices. 
C)  The Fed can engineer disinflation but not deflation. 
D)  There is no difference between disinflation and deflation. 
A)  Disinflation is a smaller increase in prices, whereas deflation is a decrease in prices. 
B)  Deflation is a smaller increase in prices, whereas disinflation is a decrease in prices. 
C)  The Fed can engineer disinflation but not deflation. 
D)  There is no difference between disinflation and deflation.

Question 7

If the public's demand for cash increases, the growth rate of the velocity of money will

Accepted Answer

A)  remain unchanged. 
B)  increase. 
C)  decrease. 
D)  become unpredictable. 
A)  remain unchanged. 
B)  increase. 
C)  decrease. 
D)  become unpredictable.

Question 8

What do many economists think contributed to the over 13 percent inflation rates experienced by the United States in the 1980s?

Accepted Answer

A)  The Fed was inflexible in its rule of 3 percent growth. 
B)  The Fed did not do enough to increase money supply. 
C)  The Fed overstimulated the economy with too much money in the 1970s. 
D)  The Fed did not react to the oil shocks of the 1970s. 
A)  The Fed was inflexible in its rule of 3 percent growth. 
B)  The Fed did not do enough to increase money supply. 
C)  The Fed overstimulated the economy with too much money in the 1970s. 
D)  The Fed did not react to the oil shocks of the 1970s.

Question 9

When aggregate demand decreases, the Fed will want to use its policy tools to

Accepted Answer

A)  keep aggregate demand lower until wages catch up. 
B)  quickly bring aggregate demand back to its original position. 
C)  push aggregate demand higher than it was originally to make up for lost growth potential. 
D)  None of these answers is correct. 
A)  keep aggregate demand lower until wages catch up. 
B)  quickly bring aggregate demand back to its original position. 
C)  push aggregate demand higher than it was originally to make up for lost growth potential. 
D)  None of these answers is correct.

Question 10

Rising home prices between 2002 and 2005 caused

Accepted Answer

A)  a construction boom. 
B)  homeowners to feel wealthier. 
C)  homeowners to increase spending. 
D)  Each of these answers is correct. 
A)  a construction boom. 
B)  homeowners to feel wealthier. 
C)  homeowners to increase spending. 
D)  Each of these answers is correct.

Question 11

Because the Fed can easily provide too much or too little response to economic shocks, economists advocate

Accepted Answer

A)  policy discretion. 
B)  policy rules. 
C)  no response to any shock. 
D)  a wait-and-see policy. 
A)  policy discretion. 
B)  policy rules. 
C)  no response to any shock. 
D)  a wait-and-see policy.

Question 12

If the Fed sets a target rate of inflation below 4 percent, it is an example of the Fed using

Accepted Answer

A)  a monetary policy rule. 
B)  discretion. 
C)  unofficial influence. 
D)  the bully pulpit. 
A)  a monetary policy rule. 
B)  discretion. 
C)  unofficial influence. 
D)  the bully pulpit.

Question 13

If the Fed wants to raise real GDP growth by raising money supply growth, which of the following conditions will make monetary policy more effective in raising real GDP growth?

Accepted Answer

A)  Uncertainty causes people to increase their demand for cash. 
B)  People lose confidence and reduce investment spending. 
C)  People believe the Fed will abandon its policy. 
D)  Prices continue to remain very sticky. 
A)  Uncertainty causes people to increase their demand for cash. 
B)  People lose confidence and reduce investment spending. 
C)  People believe the Fed will abandon its policy. 
D)  Prices continue to remain very sticky.

Question 14

The housing boom of the 2000s is an example of a negative real shock.

Accepted Answer

A) True 
 B)False

Question 15

The disinflation experiment reduced inflation in the United States but at the cost of

Accepted Answer

A)  an increase in the long-run growth rate of the economy. 
B)  high unemployment. 
C)  high inflation. 
D)  deflation. 
A)  an increase in the long-run growth rate of the economy. 
B)  high unemployment. 
C)  high inflation. 
D)  deflation.

Question 16

The Fed boosts market confidence by stabilizing AD in times of uncertainty.

Accepted Answer

A) True 
 B)False

Question 17

Many economists now believe that rising U.S. housing prices in the early 2000s were a bubble. Explain why the Federal Reserve did not pop the bubble.

Accepted Answer

There are two main reasons why the Feder

Question 18

Following the terrorist attacks of September 11, 2001, the Federal Reserve increased

Accepted Answer

A)  its lending to banks. 
B)  required reserve ratios. 
C)  open market sales of bonds. 
D)  the discount rate. 
A)  its lending to banks. 
B)  required reserve ratios. 
C)  open market sales of bonds. 
D)  the discount rate.

Question 19

Which of the following is a tool that the Federal Reserve can use to influence AD?

Accepted Answer

A)  open-market operations 
B)  lending to banks and other financial institutions 
C)  changes in reserve requirements and the interest rate paid on reserves 
D)  Each of these answers is correct. 
A)  open-market operations 
B)  lending to banks and other financial institutions 
C)  changes in reserve requirements and the interest rate paid on reserves 
D)  Each of these answers is correct.

Question 20

Explain carefully why monetary policy deals more successfully with aggregate demand shocks than real shocks.

Accepted Answer

Monetary policy affects the economy by s

Exam 33: Transmission and Amplification Mechanisms

A decrease in the price level is called

The Fed could have popped the bubble of the housing boom in the 2000s by

Disinflation is engineered through monetary expansions.

Monetary policy can be difficult for the Fed to design because of I. the political pressure from Congress. II. changing market expectations and confidence. III. imprecise data about the sizes of shocks and policy responses.

Disinflation occurs when the Fed

What is the difference between disinflation and deflation?

If the public's demand for cash increases, the growth rate of the velocity of money will

What do many economists think contributed to the over 13 percent inflation rates experienced by the United States in the 1980s?

When aggregate demand decreases, the Fed will want to use its policy tools to

Rising home prices between 2002 and 2005 caused

Because the Fed can easily provide too much or too little response to economic shocks, economists advocate

If the Fed sets a target rate of inflation below 4 percent, it is an example of the Fed using

If the Fed wants to raise real GDP growth by raising money supply growth, which of the following conditions will make monetary policy more effective in raising real GDP growth?

The housing boom of the 2000s is an example of a negative real shock.

The disinflation experiment reduced inflation in the United States but at the cost of

The Fed boosts market confidence by stabilizing AD in times of uncertainty.

Many economists now believe that rising U.S. housing prices in the early 2000s were a bubble. Explain why the Federal Reserve did not pop the bubble.

Following the terrorist attacks of September 11, 2001, the Federal Reserve increased

Which of the following is a tool that the Federal Reserve can use to influence AD?

Explain carefully why monetary policy deals more successfully with aggregate demand shocks than real shocks.

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

Price Ceilings and Floors

International Trade

Externalities: When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination and Pricing Strategy

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

Gdp and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation, and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

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